A Potential Pitfall in Collecting Unpaid Rent from Guarantors
Many times landlords in California and elsewhere seek to protect themselves by requiring that a third party guarantee a lease when a primary tenant's credit is suspect. Typically, this guarantor is referred to as a "cosignor." Usually, the cosignor is not a proposed occupant of the property but a parent or guardian wishing to assist the tenant in obtaining housing accommodations. Landlords who require guarantors undoubtedly enhance the ability to collect in these instances at the conclusion of a tenancy. However, landlords must be aware that the guarantee agreement comes with a caveat.
California Civil Code §2819 provides that when a lease obligation is "altered in any respect" without the consent of the cosignor, the cosignor is exonerated.
This statutory provision presents a significant impediment in preserving a landlord's rights against a cosignor or guarantor. Nevertheless, it is an impediment somewhat easily overcome by a savvy landlord or property manager.
In effect, this code severs the liability of the cosignor when the tenant's term lease converts to a month-to-month tenancy, rent is increased, or a tenant is moved to a different unit, for instance. Thus, if a landlord or property manager is faced with any of these changes in the tenancy, one alternative is to obtain a new guarantee agreement from the cosignor. From a practical standpoint though, obtaining a new guarantee agreement can be cumbersome and time consuming since the guarantor does not reside at the property and could be difficult to contact.
Perhaps a better alternative to executing a new guarantee agreement is to obtain an artfully crafted guarantee agreement at the beginning of the relationship that contemplates changes, modifications, or alterations to the original rental agreement or lease.
Landlords and property managers must be particularly mindful, however, that the courts are extremely meticulous in their scrutiny of language included in these guarantee agreements. Oftentimes, guarantee agreements that contemplate changes in a rental agreement or lease fail for lack of appropriate language. It is highly recommended that a landlord or property manager who wishes to ensure the effectiveness of such a guarantee agreement consult with an attorney who specializes in lease drafting and review.
In addition, any guarantee or cosignor agreement should be signed in the presence of a landlord or property manager or else properly notarized by a California Notary.
(D. Patrick O'Laughlin is an attorney with Kimball, Tirey and St. John LLP and drafts lease and related legal documents for residential and commercial clients. Please contact us by calling (800) 574-5587.)
This article is for general information purposes only. Before acting be sure to receive legal advice from an attorney.